Question about the auto industry

[maseman]

GM, Ford and Chrysler are all hurting. But won't people need cars in the future? Cars and trucks are designed to last about 5 to 8 years before they start deteriorating depending on how much they are driven. Are people no longer going to buy any new cars? I know it is a slow down now but what about in one year or 18 months from now?

Second question is if people are significantly going to slow down buying new cars isn't that going to really help dealerships with used car/truck sales? That is even more profitable for them then selling new ones. Plus it seems the after-market care market such as tires, brakes, oil changes, tune-ups plus full-fledged auto body/engine shops will be a booming business with so many old vehicles to fix.

I guess I am looking for some silver lining to the big three going down the toilet.

[Crazy Dave]

1. If you don't have a job or a 700+ credit score...

You're not going to get financing for either used or new vehicles plus they themselves have laid off tens of thousands over the years further shrinking their customer base. The foreign automakers here stateside have plenty of cash reserves but the US ones do not.

I sold cars before and you are correct, used cars are more profitable to dealers than new ones.

[ayeshahaqqiqa]

2. People are holding onto the vehicles they have

rather than buying new or used. Only when a vehicle is beyond repair will folks even purchase a used one, and many of those will be by private sale, as there are a lot of folks selling stuff right now. For me, I'm waiting for air cars to become available for sale here. I think that's the wave of the future.

[SheilaT]

3. Even if GM, Ford, and Chrysler all go out of business,

surely you've noticed that there are a few other car manufacturers out there?

Back during the oil crisis of the 1970's, people very suddenly started hanging on to their cars a whole lot longer. Part of it was the sudden uptick in the cost of gas, but probably the most important factor was that there was not enough of the dreaded foreign cars which were far better made and lasted a lot longer, and people simply kept them. I'm old enough to recall when American cars were quite frankly designed to last about 2 years or perhaps 30,000 miles, and everyone who possibly could bought new every two years. You simply lived with the expectation that your car would break down periodically. Odometers zeroed out after 99,999 miles because almost no cars went that far without being junked. Now, we routinely expect cars to go 100, 200, even 300,000 miles. Even the American cars are expected to get 100,000 miles.

The sad thing is that the American automobile manufacturers have persisted in building gas-guzzling crap, even in the face of exceptionally strong sales of "foreign" cars. While I sympathize with the rank and file workers who have just been doing their jobs, the management is clueless and overpaid.

[quiller4]

4. Car loans are very hard to get now

and according to reports in my local paper, used car financing is even more difficult to obtain than new car credit. Used car sales have declined at a more dramatic rate than new car sales in the last quarter. This may be a temporary problem and credit may loosen up as a result of the infusion of cash into the system by Congress and action by the Fed.

There are longer-term problems, too. Individuals defer major purchases of all kinds when they feel insecure about their financial situation. As unemployment rates rise, insecurity grows. Purchases of big ticket items like cars and appliances don't usually pick up until the second or third quarter of a recovery.

This is not a Detroit-only problem. Sales of all imports are off, too, and stock of new imports is backing up at West Coast ports.

As people keep and drive old cars longer, there will be an increase in business for repair shops. That is a silver lining of sorts but not as big a one as it might have been a few decades ago. Cars last far longer than they used too. In the 1950s and 60s the useful life of an engine used to be 100,000 miles. Now it is not unusual for an engine to go 200,000 without needing a major overhaul.

My personal experience supports that contention. I currently drive a 2000 Chrysler Voyager with 124,000 miles on it. Other than replacing the timing belt as recommended intervals, it has needed no expensive repair. It doesn't use any oil, runs smoothly, shifts smoothly and in general operates as dependably as it did 100,000 miles ago. My spouse drives a 1995 F150. It has over 175,000 miles, has never broken down, doesn't use a drop of oil and hasn't needed anything but routine maintenance during its operating life. We have no real incentive to replace two vehicles that still perform well and meet our needs.

We will probably visit our mechanic before we visit a dealer but he isn't making much performing the routine tasks that we could do at home if we were a bit younger.